Introduction

May 24, 2011

For many powerful GOP operatives and allied fundraisers, the luncheon last April felt like one part reunion and one part strategy summit for the fall. In reality, the get-together at Karl Rove’s house and office on Weaver Terrace in Washington, D.C., was a bit of both.

The crowd of about two dozen had assembled at the behest of Rove and former Republican National Committee chairman Ed Gillespie. The powerful pair had teamed up earlier in the year to help launch American Crossroads, a non-profit group with separate political advocacy and grassroots lobbying arms that together plan to spend $52 million this year to help a few dozen GOP Senate and House candidates with television ads and get-out-the-vote drives.

Gillespie’s invitation to the April 21 luncheon had a casual tone, asking old political comrades to attend an “informal discussion of the 2010 political landscape.”

But as the crew of old GOP friends munched on chicken pot pies, Rove and Gillespie had another, larger agenda: expanding cooperation. And they found an altogether receptive audience. Among those in attendance: Bill Miller, the political director of the U.S. Chamber of Commerce which has announced a record election budget of $75 million; former Sen. Norm Coleman of Minnesota, the CEO of the American Action Network, a fledgling group that’s hoping to spend about $25 million to help Senate and House candidates; Steven Law, a former general counsel at the Chamber and the president of American Crossroads; and Greg Casey, the president of the Business Industry Political Action Committee which aims to spend $6 million this year to boost the pro-business vote.

Altogether, the groups represented at the lunch — and a few others, some of whom have attended subsequent sessions — plan to pour some $300 million into ads and get out the vote efforts to help scores of GOP Congressional candidates in battleground states such as Colorado, Nevada, Ohio, and Pennsylvania. Some have likened their effort to a shadow GOP.

For Gillespie, Rove and other attendees the rationale to expand their coordination was simple: Democratic allied groups in recent elections had considerable success using cooperative tactics and GOP strategists wanted to match and even one up them. “I’m glad we’re taking a page out of their playbook,” Gillespie told the Center.

Former RNC chairman Gillespie has been running a fundraising marathon for much of the year, having raised millions of dollars to jumpstart the fledgling 527 American Crossroads and its 501(c)(4) affiliate, Crossroads GPS.

These independent GOP allies represent the leading edge of the new world of campaign finance, 2010 edition. Sensing a possible takeover on Capitol Hill, they have aggressively tapped a network of angry corporate and conservative donors, a task made easier by the Supreme Court’s famously controversial January ruling in Citizens United v. Federal Election Commission. That decision overturned decades of campaign finance law and gave the green light to corporations and unions to spend unlimited amounts on ads and other campaign activities that can urge voters to directly oppose or support individual candidates. Some companies in sectors hit hard by new regulations — including financial, energy and health care interests — are grabbing for their checkbooks, and they are actively seeking the anonymity provided by new and older independent groups in the post-Citizens United world.

The tens of millions being plowed into these groups are also partly attributable to another phenomenon: management and fundraising problems at the Republican National Committee under Chairman Michael Steele. Those woes have given major donors and fundraisers heartburn and prompted many to put their political and financial chips elsewhere.

And now Democratic constituencies are responding. Jittery about a potential avalanche of corporate money flowing to GOP allies, several unions, led by the American Federation of State, County and Municipal Employees, the AFL-CIO, and the Service Employees International Union, have begun plotting a counter-strategy — hiking their budgets, polishing their famous “ground game” tactics, and expanding cooperative efforts of their own to avoid a debacle in November.

Notwithstanding labor’s defensive efforts, based on budget and spending projections from many big groups on both sides it’s expected that GOP-allied entities are likely to outspend their Democratic foes by a three to two margin and perhaps even two to one.

In recent weeks, GOP allies have built a huge lead of almost five to one in ad spending compared to their Democratic counterparts, according to the Campaign Media Analysis Group. CMAG data says that GOP-affiliated groups spent $24.8 million on Senate and House ads from Aug.1 to Sept. 20 while their Democratic rivals spent just $4.9 million in the same period.

What this amounts to, say veteran money and politics watchers, is a virtual Wild West, with fewer rules and more cash than ever. Republicans and Democrats each now boast ten or so deep-pocketed independent groups with plans to spend $10 million plus helping Senate and House candidates by running expensive ads and/or conducting get out the vote efforts. And they’re on track to spend, collectively, some $500 million dollars or more. With little oversight.

“The financial flows into this election cycle,” says Marcus Owens, a partner at Caplin & Drysdale and a former IRS director of exempt organizations, “are beyond regulation and beyond the existing mechanisms of the Federal Election Commission and the IRS,”

The Citizens United decision: A game changer

The high court’s ruling, which initial polls showed was opposed by 80 percent of the public, has helped to open the floodgates for potentially record spending by outside groups this year while creating a new fundraising landscape.

A sharply split Supreme Court in its 5 to 4 Citizens United decision overruled two key precedents about the free-speech rights of corporations and affirmed on First Amendment grounds the idea that the government should not regulate political speech.

Justice Anthony Kennedy, writing for the majority, said that “If the First Amendment has any force, it prohibits Congress from fining or jailing citizens, or associations of citizens, for simply engaging in political speech.”

President Obama attacked the decision as “a major victory for big oil, Wall Street banks, health insurance companies, and the other powerful interests that marshal their power every day in Washington to drown out the voices of everyday Americans.”

While the decision didn’t directly address labor unions, the ruling also gives them new freedom to spend without limit certain funds on campaign ads and other election activities.

The case itself arose from an unusual venue: It centered on a ninety-minute documentary, Hillary: The Movie — a biting look at Hillary Rodham Clinton — that was the handiwork of a conservative nonprofit group: Citizens United.

Longtime campaign finance watchdogs reacted angrily to the decision. “The 2010 Congressional elections are being flooded by influence-buying spending as a result of Citizens United,” said Fred Wertheimer, the president of campaign finance reform advocacy group Democracy 21. “I think the 2010 spending will be dwarfed by what will come.”

Most leaders of the GOP’s allied groups disagreed about the decision’s influence, but a few acknowledged its potential to change the fundraising game.

“Citizens United opened the door for the unparalleled participation by corporations at the financial level,” says veteran GOP operative Scott Reed, who this summer launched a group called the Commission on Hope, Growth and Opportunity with an eye to raising $25 million to help about two dozen GOP candidates. “But it took the combination of the RNC being inept and the Obama administration’s political agenda to bring it all together.”

Corporations flying under the radar with millions in donations

A look at both the older and newer GOP-leaning groups that are planning the most expensive drives this year makes this much clear: Many corporations seem inclined to give to groups that are allowed by tax laws to keep their donations anonymous.

The desire for anonymity is attributable to several factors, say campaign finance lawyers and fundraisers, but arguably the most important is that the Supreme Court decision was controversial and unpopular. Some experts say the situation has prompted companies to fear reprisals from liberal groups for making large donations publicly.

Most of the independent groups raking in big bucks are set up under IRS rules as so-called 501(c) organizations, named after a section of the tax code that covers a range of non-profit tax exempt organizations. They can accept unlimited donations and are not required to make their donors’ names public.

Quite a few of the new GOP-allied groups this year have obtained 501(c)(4) social welfare status, providing their donors anonymity but requiring them to spend more than half their funds on nonpolitical activities such as legislative matters, a rule that still allows them wiggle room since the IRS regulations are often vague. For instance, some outfits are running issue ads attacking the stands of incumbents on legislative matters such as health care reform. “These advertisements clearly have a political edge, but they also have a grassroots lobbying message,” said Marcus Owens, the former IRS official. Further, business trade groups such as the Chamber of Commerce have long enjoyed IRS status as 501(c)(6) operations, which also are not required to disclose their donors’ names.

“The major impact [of the decision] is that more money is going to 501(c)(4) groups, trade groups and others that don’t disclose their donors,” former FEC counsel and election lawyer Larry Noble told the Center. “Those groups that don’t disclose are getting more money and getting more aggressive with their ads.”

The “501cs are the keys to the political kingdom,” says lobbyist Scott Reed, “because they allow anonymity.”

The increasing popularity of under-the-radar 501(c) groups is underscored by contrasting this year’s public disclosures with past election seasons. A recent study from Public Citizen shows that in 2004 and 2006, the large majority of outside groups revealed their donors. By contrast in 2008 only about half disclosed their donors and this year, to date, a scant 32 percent have made such disclosures.

Many of the GOP groups have aggressively tapped into what looks like a growing corporate backlash among financial service, energy, and health insurance companies against the Obama administration and Congress for expanding government regulation and taxation of some business sectors.

The Chamber of Commerce

The Chamber of Commerce is expected to have the deepest pockets of the independent conservative and business groups when this year’s fundraising marathon concludes.

Bill Miller, the national political director of the Chamber, told the Center that its political program is “an outgrowth of the frustrations of the business community.” Miller said the “continued assault on industry by the policies put forth in this Congress has caused a recognition that the composition of this Congress has to change.” Although the Chamber bills itself as bipartisan, historically, the lion’s share of its issue ads and contributions has benefited GOP candidates.

Miller said corporate frustration is especially acute over four big issues that “have had, could have, or will have very negative consequences for the business community.” They are: financial services reform, health care reform, and the specter of both cap and trade and “card check” legislation that would make it easier for unions to organize. One mega-corporate donor has been identified: News Corp., whose CEO is billionaire Rupert Murdoch, reportedly has given $1 million to the Chamber for its political drive

Early this summer, the Chamber’s feisty chieftain, silver-haired Tom Donohue, told a gathering of about 100 trade group leaders at a posh resort in Rancho Palos Verdes, Calif., that the organization was going to spend $75 million on its election program — more than double the $36 million it spent on the 2008 campaign.

As of mid-September, the Chamber had spent about $20 million on issue ads other political activities including mail and phone with many millions more to come, Miller says. Further, the business lobby group is also planning to pour millions of dollars into online voter mobilization and other activities this year using an assembled list of six million “Friends of the Chamber.”

The organization will be active in nine or ten Senate races and about three dozen House races in such key states as California, Florida, New Hampshire, Ohio, and Pennsylvania. The strategy, Miller says, is to focus on “cluster states” where there are multiple Senate and House contests that the Chamber wants to sway.

Additionally, the Chamber will also pour millions of dollars into online advertising and other media activities focusing on its key economic issues — job creation and regulation — through a separate but complementary Chamber program called the Campaign for Free Enterprise, a multi-year $100 million effort that launched last year.

Rove and Gillespie lead money charge for American Crossroads

An affiliate group of American Crossroads is perhaps the most prominent and aggressive of the new organizations that can take in anonymous donations. American Crossroads opened its doors in March as a section 527 group. Under IRS rules the group can accept unlimited donations and can spend all its monies on political advocacy, but must disclose its large donations and donors monthly.

In early June — about the time that reports showed it had banked less than $1.3 million through May — a second money front was opened with the founding of Crossroads GPS, a 501(c)(4) which can also accept unlimited donations but doesn’t have to disclose its donors at all.

Steven Law, the president of both groups and a former chief of staff to Senate Minority Leader Mitch McConnell, said that as of Sept. 20 the two had pulled in just over $32 million. That cash has been corralled with lots of help from Rove and Gillespie, whom the group calls “informal advisers.” Early this year the duo made a successful fundraising foray into Texas and this summer they also scored big with Wall Street donors.

Two companies in which Dallas-based billionaire Harold Simmons boasts major holdings — Southwest Louisiana Land LLC and Dixie Rice Agricultural Corp. — have plowed a total of almost $2 million into the 527. That makes the veteran conservative donors’ firms, one of the three biggest financial angels with Texas ties. Two other Lone Star moguls, Trevor Rees-Jones, who runs Dallas-based Chief Oil and Gas, and Robert Rowling, together with his company TRT Holdings, which owns Omni Hotels and Gold’s Gym, have each given $2 million to the group (and to a recently formed successor PAC).

Paul Singer, the New York-based founder and CEO of the $17 billion hedge fund Elliott Management Corp. has also written a seven-figure check to Crossroads GPS, say sources familiar with the group. Singer has also been a hefty donor and fundraiser for several GOP candidates and campaign committees this election season.

Dallas billionaire Simmons wrote checks for $1 million apiece to the newly founded group American Crossroads, among the first checks the fledgling 527 group received.

Both entities combined have will have spent close to $13 million by the end of September on hard hitting ads with a major focus on Senate contests in Colorado, Missouri, Nevada, and Ohio, Law says. Further, both groups will also run ads to assist a dozen to two dozen House races this fall, and will focus partly on states where there are multiple candidates to their liking, he adds. At least one of the group’s ads in Nevada attacking Senate Majority Leader Harry Reid has been criticized on factual grounds by nonpartisan ad watchers.

American Crossroads has run a few direct advocacy ads in support of candidates, including one for former Rep. Rob Portman, who is making a bid for the Senate in Ohio, and it “will be doing more express advocacy going forward,” says Law, who besides his Hill background was deputy secretary at the Labor Department under McConnell’s wife, Labor Secretary Elaine Chao. Looking further ahead, Law and other leaders of the two groups stress that they expect to stay very active with issue advocacy and grassroots lobbying post-November and will also be a force in the 2012 elections.

Other new conservative groups are pulling in big money

While most of the big spending so far has been on Senate contests, Americans for Prosperity — which has announced plans to spend $45 million this year — has concentrated on helping House candidates. The organization was the largest spender on House races in a one-month period during late summer, according to CMAG.

AFP is a 501(c)(4) that’s closely linked to David Koch, the co-chairman of the Kansas-based energy giant Koch Industries. David Koch, who earlier this year gave a $1 million check to the Republican Governors Association and is a long time backer of conservative causes, heads the board of Americans for Prosperity Foundation, a sister 501(c)(3) group.

Other groups are stepping up to help House candidates too and tapping donors in sectors hit hard by new regulations.

Lobbyist Reed’s fledgling Commission on Hope, Growth and Opportunity is seeking to raise $25 million (and he says had pulled in about half of that in mid-September) to run ads in 20 House districts and a few Senate contests. In late September, the group ran its first ads boosting some House candidates in New York and South Carolina.

Where’s all that dough coming from? “The big three stepping into the batter’s box are the financial services industry, the energy industry, and the health insurance industry,” Reed said.

Other older groups that can protect donors’ identities, such as the American Future Fund and BIPAC, also have seen spikes in their funding this year. Nick Ryan, an Iowa based lawyer who founded AFF, a 501(c)(4), says that he expects his group will spend close to $25 million on ads this year, or more than triple the $8 million it poured into issue ads in the 2008 elections.

The fundraising landscape “is the best I’ve ever seen on the conservative GOP side,” says Ryan, a former top aide to ex-Iowa Rep. Jim Nussle.

The fund spent almost $1 million early in the year to help elect Republican Scott Brown Senator in Massachusetts and more recently has been pouring big money into states such as California and New Hampshire in some primary contests.

Looking ahead, Ryan says his group is going to be doing more House races and plans to do a “blend of issue ads and direct advocacy.”

The Washington-based Business Industry Political Action Committee, or BIPAC, doesn’t have as much cash as its allies, but still plans to almost double its spending this cycle to $6 million, says its president Greg Casey. BIPAC, a business group that tilts heavily to the GOP, uses a sophisticated computerized database to track voting records of candidates which it provides to its 400 or so corporate members to help them educate their workers. The goal is simple: spur employees to pull the right levers at the polls.

Sources familiar with BIPAC tell the Center it has long depended heavily on large energy interests such as the American Petroleum Institute, ExxonMobil, and mining and gas companies for a hefty chunk of its election budget. For the last several election cycles, API was the leading donor to the group, pumping in about $400,000 every two years, say sources familiar with the outfit’s fundraising.

BIPAC’s board boasts several heavy hitting Washington lobbyists such as ex-Rep. Steve Bartlett of Texas, who runs the Financial Services Roundtable, a group comprised of some 100 leading integrated financial firms, and Rick Shelby, the top lobbyist with the American Gas Association.

GOP groups mimic liberals by expanding cooperation

The money and the energy on the GOP side have been spurred by a new spirit of cooperation and coordination among allied groups. There are more cooperative fundraising initiatives, shared offices, regular meetings of key leaders like the April 21 session at Rove’s, and a division of labor in terms of which states and races different groups are spearheading. Coordination among independent groups is legal under campaign finance laws, but the organizations are strictly barred from conducting any joint activities with party committees or the candidates themselves.

GOP politicos say that their new approach has been inspired by what Democratic groups have accomplished in recent campaigns. “The left has been very successful,” at this kind of cooperation, ex-Sen Coleman, the CEO of the American Action Network told the Center

One example of the new cooperation: the shared office suites on the 12th floor of an office building on New York Avenue in Washington, which are home to both American Crossroads and the American Action Network. And Coleman’s office is just down the hall from Law’s.

The two organizations have also “done a few joint fundraising events,” Coleman says, “We’re all going after folks who care about government-run health care, higher taxes and more government stifling economic growth.” Coleman’s network boasts two separate arms one of which is a 501(c)(4) that conducts a mix of political and legislative advocacy.

Early on, the network received some fundraising help from Gillespie and Rove, Coleman says. On March 8, Gillespie went to New York on a joint fundraising mission with Coleman and Fred Malek, a veteran GOP fundraiser who founded the American Action Network The trio met with potential Wall Street donors.

Fred Malek Early this year, Malek founded the American Action Network, which has a 501(c)(4) advocacy arm that is trying to raise $20 million to $25 million to help elect dozens of GOP Senate and House candidates in such key states as New Hampshire, Washington, and Wisconsin.

“Minimum duplication of effort makes donors happy,” Coleman says. The Network, for instance, through its 501(c)(4) arm has run big ad drives attacking Democratic incumbents in states such as Washington and Wisconsin, places where Law’s group has not been active.

Miller of the Chamber notes that “having an understanding of other people’s priorities allows us to make smarter and more informed decisions about what we do.”

Law adds that a recently launched $10 million get-out-the-vote drive by American Crossroads that’s focused on eight key states including Colorado, Florida and Kentucky will be conducted in tandem with several other conservative groups and the Republican Governors Association. Conservative donors “are increasingly interested in getting out the vote this year,” Law says. One reason for that: the financial woes of the RNC have made it less able to take the lead on get-out-the-vote efforts.

Big unions, liberal groups play defense

Karen AckermanDemocrats worried about an enthusiasm and money gap are looking to their traditional union allies for help — and they’ll get it. But unions are worried about the influx of corporate monies this year to GOP boosters in the wake of Citizens United. “We’ll see how it plays out in the next six weeks,” says Karen Ackerman, the political director of the AFL-CIO, “and we may not know the full impact for a few elections.”

For now, unions say they expect to be outspent heavily on the ad wars — and in fact they already have been, according to the Campaign Media Analysis Group. A CMAG analysis says GOP-allied independent groups spent $18.1 million on Senate ads from Aug. 1 to Sept. 20, while their Democratic counterparts spent $2.6 million in the same period. On House races, GOP groups spent $6.7 million compared to $2.3 million doled out by Democratic groups.

The big advantage that labor banks on is its ability to mount a heftier and more aggressive get-out-the vote drive — the so-called ground game. Some unions have responded by boosting their spending and trying to do more in concert as well.

In late August, the AFL-CIO announced it would mount a joint national political operation this year with the SEIU and the United Food and Commercial Workers. The three union giants, who for the last couple of election cycles have worked separately, have plans for a combined political drive that could cost at least $94 million with each organization

Of that total, the SEIU is slated to spend $44 million, a jump of about 25 percent from what it spent in 2006. AFL-CIO sources that its budget this year will be roughly equal to the $50 million it spent in the last elections.

“The stakes are enormous for working families, which is driving the unions to seek a high level of cooperation and coordination,” Ackerman said.

The collaboration will focus on 26 states, among them Illinois, Ohio, Pennsylvania and Nevada, and will be aimed at reaching more than 17 million voters including active union members, their families and union retirees.

One veteran liberal activist stresses that having the AFL-CIO and SEIU mount joint operations will “promote greater efficiency and a common strategy that’s especially important in mega states such as California and Illinois,” where there are many union members. Other unions are boosting their budgets, as well.

AFSCME capitalizing on Citizens United

AFSCME president McEntee’s 1.6 million member union has boosted its spending by 25 percent from 2006, to a hefty $50 million this time around.

Gerry McEntee, the long time president of AFSCME — which belongs to the AFL-CIO — told the Center that his union will spend at least $50 million, a 25 percent jump over the 2006 cycle. And McEntee says that AFSCME will do direct advocacy ads now that the Supreme Court has given the green light in Citizens United.

McEntee says his union will spend its funds on a mix of ads and get-out-the vote work to help Democrats in some 60 to 65 House races and 18 of the 37 Senate contests. Overall, he estimates that about a quarter of the funds will go for ads and the bulk for voter mobilization efforts.

“We’re in the race of our lives,” McEntee said. And while labor may be outspent, it should have a big advantage in voter mobilization drives. He said earlier this year that AFSCME knows how to do “boots on the ground,” adding, “I don’t think Karl Rove will be knocking on doors.”

But he acknowledged that the labor movement may be challenged in its efforts by the recession and disappointment on the part of some union members that Congress hasn’t done more to help them, especially on card check legislation. “It’s hard to get your people juiced up,” McEntee added.

Other liberal groups scramble to raise cash

A few other liberal groups which get some labor funding are also trying to ratchet up their political game. Greg Speed, the executive director of America Votes, a coalition of about 400 groups (including such big names as the SEIU and the AFL-CIO) says that its budget this year will be $8.5 million. That’s about $3 million less than what it spent in 2008, primarily because it has cut the number of states it is focusing on, from 14 to 10 this year.

The group’s priority is voter mobilization of the liberal base: that means phone, mail, online communications, and other tools to reach potential allies, Speed says. It will focus on such battleground states as Colorado, Nevada, Ohio, and Pennsylvania. “We’re going for the multiple bang states where mobilizing our voters can have the maximum impact up and down the ballot” — including where redistricting issues hang in the balance.

Late last year, Varoga says that he decided to expand the fundraising and political muscle of the 527 he established, Patriot Majority, by creating an allied PAC, Patriot Majority PAC.

The 527 group Patriot Majority, which started in 2005, and the newer allied Patriot Majority PAC, are expecting to spend a bit more than $12 million this year in a handful of key states, a slight drop from the $14 million spent in the 2008 elections, says founder Craig Varoga. The climate for fundraising “has been significantly harder this year,” he says, citing the poor economy’s impact on donors, the greater number of races in play, and the generally healthy state of the Democratic campaign committees, compared to their GOP counterparts.

The bulk of the Patriot Majority’s efforts have been in Nevada where Patriot Majority and its PAC have spent about $4.5 million on ads so far: that’s likely to double before the November elections. Senator Harry Reid “is the number one target [of independent groups] in the Senate,” Varoga says, “and we’ve been focused on that since the end of last year.”

Can Citizens United impact be muted by Congress?

Almost as soon as the high court ruled in January, campaign finance watchdogs began to push for greater disclosure of the firms that were poised to funnel millions of dollars anonymously to independent groups.

One result of that push: the Disclose Act, which would require corporations, unions and other interest groups to identify themselves explicitly in campaign advertisements that they finance. Large donors funding these ads would also have to be named. The bill passed the House earlier this year with just two Republicans backing it; and has been blocked in the Senate twice on cloture votes with unanimous GOP opposition. The bill’s lead sponsors are Rep. Chris Van Hollen, D-Md., who chairs his party’s House campaign committee, and Democratic Sen. Charles Schumer of New York who formerly chaired the Senate counterpart.

The debate has a familiar ring. Republicans have charged that the bill is politically motivated and prompted by a desire of Democrats to maintain their majorities. President Obama, meanwhile, has repeatedly championed the measure, most recently in his Saturday morning address on Sept. 18. “What’s at stake is not just an election,” he said. “It’s our democracy itself.”